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WHILE growth in imports exceeding that of exports may be a temporary phenomenon, there are concerns that this may be a continuing trend against an uncertain global outlook.
There is also concern that higher consumption from all the stimulus spending will increase imports but will not contribute to exports.
Over the next few months, the challenge will be to reverse this trend of higher growth in imports over exports.
Why is the trade surplus so closely watched?
It is the goods trade surplus (where exports exceed imports of goods) that has sustained Malaysia’s current account surplus since 1998.
A certain threshold of goods trade surplus is needed to offset the deficit in the services and income accounts.
Otherwise, there is a risk of the current account tipping into deficit, which will have implications on investor confidence and the ringgit, said United Overseas Bank (M) Bhd senior economist Julia Goh.
Besides its net trade in goods and services, the current account records a nation’s net earnings on cross-border investments and net transfer payments.
Hitting six-month highs in May, growth in exports reached 30.5%, while imports grew faster at 37.3%.
Supply disruptions and the Russia-Ukraine war are expected to exert further pressure on input costs and result in delays in the completion of finished products, said Bank Islam Malaysia Bhd chief economist Afzanizam Mohamed Rashid.
Imports are rising faster than exports largely due to the reopening effect, pent-up demand and restocking of goods based on higher costs and prices.
Since the start of the year, the highest growth is from imports of intermediate and consumption goods.
In the first quarter of 2022, the current account surplus had already narrowed more than expected to RM3bil or 7% of gross domestic product (GDP), which was the lowest since the second quarter of 2013.
The monthly trade surplus narrowed further to RM23.5bil in April, 2022, and RM12.6bil in May, 2022.
This brings quarter-to-date (April to May 2022) trade surplus to RM36.1bil compared with RM65bil in the first quarter of 2022.
This would weigh on the current account balance in the second quarter of 2022.
Global factors are impacting the growth in exports.
Despite higher commodity prices in May, export values fell for the second consecutive month after reaching a historic high of RM131.6bil in March.